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Intergenerational equity, discounting, and the role of cost-benefit analysis in evaluating global climate policy

Robert C Lind
Johnson Graduate School of Management, Cornell University, 562 Malot Hall, Ithaca, NY 14853, USA

When public policies with impacts far into the future are being debated, the question inevitably is raised whether cost-benefit analysis which discounts future costs and benefits is not biased against future generations and whether, if such discounting is appropriate at all, a lower rate should be used to avoid such bias. The debate on global climate change is no exception. This paper sketches and analyses the welfare foundations of cost-benefit analysis and from this perspective analyses the role of cost-benefit analysis in the climate policy debate, particularly with reference to intergenerational effects. The paper concludes that the cost-benefit criterion cannot provide a definitive basis for deciding whether we should commit to a longer-term programme to moderate climate change; the issues of intergenerational equity are not that global climate change will significantly lower the GNP of future generations, but relate to the possibility of science fiction-like changes in the planet that will produce catastrophic effects in the future; and the typical way in which the cost-benefit problem is posed obscures the basic choices that we should be evaluating.

Keywords: Global warming; Intergenerational equity; Discounting



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